In the past, the market dictated property value. The appraised value typically mirrored the accepted offer, and lenders would approve a loan for the same amount. The Home Valuation Code of Conduct of 2009 changed everything: The value of a home hinges on the appraiser’s opinion, not the agreed-upon price. After your offer is accepted and an appraisal is performed, your lender will inform you if your offer was too high, and you may be able to reopen negotiations. Lenders will not approve a mortgage for more than a home is worth. Conversely, if the accepted offer is below the appraised value, you've hit the jackpot and your mortgage will go through. To know what offer to make from the start, do a little detective work first.
Research recently sold homes online to find out what they sold for. Use the data to decide what is a fair offer and support your offer to the seller. Choose comparable properties that are located in the same neighborhood and offer similar features. Also check the prices of other homes actively for sale in the area. If you struggle to find comparable properties, you can use sales data older than three months, but you must take into account any market changes since the sale.
Real estate agents have a wealth of data available about comparable homes on the Multiple Listing Service, and they typically provide a comparative market analysis for no cost. Talk to friends to find a reputable agent in your area. Real estate professionals know how to adjust prices to account for differences among comparable properties, and they can isolate any foreclosures on the list. Because distressed properties are often in inferior condition, they aren't ideal for purposes of comparison.
Square footage; lot size; number of garages, bedrooms and bathrooms; condition; age; and style all impact property value. Properties in immaculate condition with many upgrades sell for more than distressed houses of the same size, type and neighborhood, and ranches generally command more than split-levels. Newer homes typically sell for more than older homes. Size matters: The larger the home or lot, the higher the value.
Location is the main determinant of price. If you’re getting into the most prestigious neighborhood in the area, expect to pay more than you would for a similar house in a less desirable area. Properties in reputable schools districts command a premium, as do homes on large bodies of water.
Days on Market
The longer a home’s been on the market, the more likely it's overpriced. Though the property may have been improperly marketed or unavailable for showings, a house that’s been on the market for more than 30 days could be worth less than the asking price. Use the days-on-market figure as one factor in determining the right offer. If a home is new to the market, there's less wiggle room. You can make a lowball offer, but someone else may outbid you in the interim. To avoid angering or insulting a seller, offer at least 85 percent of the asking price.
Other Value Indicators
The tax assessor’s value may be too low or too high, but it can still provide a rough estimate of value. Also consider the replacement cost of the property: If you can build the same home in a similar location for less than your offer, you may want to rethink your bid.
- George Doyle/Stockbyte/Getty Images